S&P 500 Futures, US 10-year Treasury yields portray risk-off mood on Fed, China concerns

• Market sentiment remains jittery amid increasing hawkish Fed bets, China-linked news.
• S&P 500 Futures print four-day downtrend to refresh monthly low.
• US 10-year bond coupon pokes the multi-year high marked in May.
• Risk-off mood favors bond sellers, weighs on riskier assets, intermediate pullbacks can’t be ruled out.

Risk-aversion is at full steam during Monday’s Asian session as traders brace for this week’s key central bank decisions. That said, the sour sentiment mainly takes clues from Friday’s strong US inflation data and China’s covid-linked updates, not to forget the Sino-American tensions over Taiwan.

While portraying the mood, the S&P 500 Futures dropped for the fourth consecutive day to refresh a monthly low to around 3,840, down 1.45% by the press time. In doing so, the benchmark US equity futures stay directed towards the yearly low marked in May.

On the other hand, the US 10-year Treasury yields rise 2.7 basis points (bps) as buyers attack the four-year low marked in May, around 3.20%.

Friday’s US inflation numbers roiled the increased fears over the Fed’s aggression while headlines concerning China’s covid conditions and the latest US-China tussles over Taiwan add strength to the risk-off mood.

The sentiment worsened on Friday after the headline US Consumer Price Index (CPI) rose to 8.6% YoY versus 8.3% expected while the Core CPI jumped 6.0% YoY compared to the expected drop to 5.9% from 6.2% a month earlier. It’s worth noting that the record low of the University of Michigan Consumer Sentiment Index for June, to 50.2 versus revised down 58.1, couldn’t stop the US dollar bulls.

On the other hand, Beijing witnessed a jump in the covid numbers during the weekend and recalled some of the virus-led activity restrictions together with the mass testing. Shanghai is on the same line. Recently, Beijing’s local government spokesman Xu Heijian mentioned that a covid outbreak linked to a bar in Beijing is ferocious. Further, China’s Defense Minister Wei Fenghe crossed wires during the weekend stating that China's relationship with the US is at a crossroads. The policymaker also added that they will fight to the end if anyone attempts to secede Taiwan from China. “those who seek Taiwan independence will come to no good end,” said China’s Wei.

Elsewhere, fears of recession gain momentum as the major central banks brace for aggressive rate hikes, except for the Bank of Japan (BOJ), when the economic recovery is fragile.

Looking forward, monetary policy meetings of the Bank of Japan (BOJ), Bank of England (BOE) and the US Federal Reserve (Fed) will be crucial to watch. Additionally, multiple data relating to consumer spending will also entertain the market players during the key week.

Also read: Yield curve inversions return, signaling another recession warning